Education finance in India is driven by two key factors: the cost of education, and students’ socio-economic profiles.
At the moment, about 95% of the overall bank lending vis-à-vis education loans is attributed to public sector banks. Due to the disbursal of relatively lower loan amounts by public sector banks, most of these disbursals are considered as priority sector lending. What’s more? They are also unsecured.
The defaults in public sector banks, as a result, are quite high; considering the fact that these loans are unsecured and are used to finance graduation courses that offer fewer employment opportunities.
There have been regional disparities so far as the disbursal of education loans is concerned. South India accounts for about 56% of banks’ overall education loan portfolio. Telangana, Andhra Pradesh, Maharashtra and Karnataka have contributed significantly to the aforementioned figure, while Kerala and Tamil Nadu together account for a whopping 36% of the outstanding portfolio.
The inclination of students to pursue higher education, along with higher literacy levels in some regions, are the main reasons for the disparities. Other key factors include access to government schemes, and availability of finance and ready educational infrastructure.
The National Survey Sample Report 2014 revealed that in comparison with general education, the average yearly expenditure on vocational and professional/technical education was four and nine times more, respectively. The fact that most colleges in the country are unaided and privately managed, has contributed towards an increasing need for finance from banks.
The survey also revealed that in comparison with government institutions, the average yearly expenditure on professional/technical education in privately managed institutions was 1.5 to 2.5 times more. As a result, students from lower socio-economic environments have few options than turning towards bank financing.
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